BIR Ruling No. 145-84

September 3, 1984 BIR RULING NO. 145-84 37-a-009-84-145-84 Gentlemen : This refers to your letter dated May 11, 1984 requesting confirmation that the royalty fees payable by your client, E.R. Squibb & Sons Philippine Corporation [E.R. Squibb (Philippines)] to E.R. Squibb & Sons, Inc. [E.R. Squibb (U.S.)] under the License Agreement between them are subject to 15% withholding tax under Article 13, (2), (b), (iii) of the RP-US Tax Treaty in relation to Article 12, (2) of the RP-Austria Tax Treaty. It is represented that your client, E.R. Squibb (Philippines) is a domestic corporation engaged in the manufacture of pharmaceutical products; that it entered into a License Agreement with E.R. Squibb (U.S.) a non-resident U.S. corporation which provided: (1) the non-exclusive right and license to compound, package and sell the products under all patent rights in the Philippines and to use the applicable trademarks and tradenames in connection with said products; (2) the non-exclusive right to use the know-how and technical information and data relating to the licensed products; and (3) the payment of royalty fee of 5% based on the net sales. In reply, please be informed that the fee of 5% based on the net sales is considered as a royalty payment under Article 13 (3) of the RP-US Tax Treaty and is subject to withholding tax at the rate of 25% pursuant to Article 13 (2)(b)(i) of the same treaty. The most-favored nation clause provided for under subparagraph (iii) of the above-mentioned Article in relation to the RP-Austria Tax Treaty, Article 12 paragraph 3, providing for a 10% withholding tax on royalties paid to a resident of Austria by a Philippine BOI registered pioneer enterprise is not applicable. It is applicable only for royalties "paid under similar circumstances." Under the RP-Austria Tax Treaty, there is a matching credit of 15% of the gross amount of the royalties (Article 23, par. 3); while under the RP-US Tax Treaty there is no similar credit. Therefore, the royalties paid by E.R. Squibb & Sons (Philippines) to E.R. Squibb & Sons (U.S.) under their License Agreement dated October 1, 1962 as amended, are subject to withholding tax at the rate of 25% under Article 13 (2)(i) of the RP-US Tax Treaty. aisadc Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner